Construction Loan LtvBuilding loan Ltv
If SBA 504 grants are intended to encourage business growth and to generate and maintain employment, should they be exempted from the HVCRE provisions, since SBA 504 grants are deemed to be EU investment in developing countries and are therefore exempted from the HVCRE provisions? The SBA 504 loan, approved by Chapter 5 of the Small Business Investment Act (15 U.S.C. 695 - 697g), provides small companies with long-term funding for the acquisition, construction, expansion or improvement of property such as owner-occupied industrial property and equipment.
It is financed by a creditor and a municipal DC. Loan finance in a SBA 504 type operation is 50% of the cost of the property backed by a pledge on the property and other 504 securities, CDC finance covers up to 40% of the cost of the property backed by a pledge on the 504 securities, but not more than 40%, and the debtor usually bears 10% of the cost of the work.
At least 51% of the property must be owner-occupied for older properties and 60% for new properties. Understandably, creditors are worried about whether an SBA 504 loan is covered by the rules of applying paragraph 5 of the Code. Rules of Carrefour Regional Council and credit programme SBA 504 are different and not consistent in relation to building credits.
In most cases, an SBA 504 building loan stipulates that the debtor must make a 10% contribution to the work. In contrast to a HVCRE loan, where a borrowing party must provide 15% of the estimated "as completed" value of the loan, the SBA 504 loan obliges the borrowing party to pay 10% of the overall cost of the loan (see 13 C.F.R. § 120).
Section 910(a)(4)), unless the SBA is ''acquiring, constructing, converting or extending a confined or earmarked edifice or structure'', in which case the borrower's share must be at least 15% of the cost of the operation (see 13 C.F.R. Section 120.910(a)(2)). Wherever creditors may be most affected, this is while the creditor has a loan at a 90% LTV until the CDC loan is financed.
In most cases, the transitional limit is 45 workingdays, except in the case of a construction loan. A CDC loan is only financed after the construction is complete, which means that the creditor has to maintain a 90% LTV loan for a much longer term. As a rule, the lender's exposure is reduced by the CDC loan upon finalisation, which reduces the lender's LTV to 50%, and by supplementary securities such as guarantees from the borrower's originator and construction guarantees and other commercial securities in addition to the 504 securities.
The HVCRE guidelines, as mentioned above, grant an exemption for aid to take the form of a loan to an investor in another country which would otherwise be regarded as a form of investment in developing the Union. SBA 504 credits are intended to support business growth and the creation and maintenance of employment. Creditors may obtain credits for granting SBA 504 credits under the Investment Relief Act of the Comunity. Part of the federally enacted provisions on the re-investment of municipalities defines municipal redevelopment as "activities that foster commercial growth by funding enterprises or enterprises that satisfy the criteria for the scale of the developing company or investment programmes for small enterprises of small business administration laid down in 13 C.F.R. § 121".
SBA 504 credits from SBA 504 appear to be exempted from HVCRE rules as SBA 504 credits are considered as investments in municipal redevelopment, but the issue remains until clarified by the Fed.